Extended Background

India’s manufacturing sector hosts many foreign MNEs, like SABIC, that provide marketing and support services to overseas group entities. Transfer pricing enforcement in India is robust, and authorities sometimes try to change accepted benchmarking to boost assessments.

Detailed Arguments

Taxpayer

• Stressed the consistency principle: longstanding, accepted use of the transactional net margin method (TNMM) for benchmarking, with documentation proving comparability.

• OCD and Indian rules require only method changes when facts change.

Revenue

• Proposed a new, less-explained benchmarking method, aiming for a larger profit allocation to India.

Court Reasoning

• Held that accepted benchmarking must be retained unless material facts evolve.

• Emphasized legal certainty and the need for authorities to justify changes with new evidence.

Procedural Journey

• Dispute moved from audit through appeals to the Indian High Court.

• Court ruled in favor of the taxpayer; assessment was cancelled.

Implications Beyond the Case

• Protects MNEs from arbitrary shift in benchmarking methodology.

• Compliance learning: Maintain thorough documentation and year-to-year consistency unless business models genuinely change.

Original Case Link:

Tax Risk Management summary